The Role of the Actuary in a Life Insurance Company Yangon, Myanmar 14 July 2014 Darryl Wagner, FSA, MAAA Chair, IAA Asia Subcommittee.

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Presentation on theme: "The Role of the Actuary in a Life Insurance Company Yangon, Myanmar 14 July 2014 Darryl Wagner, FSA, MAAA Chair, IAA Asia Subcommittee."— Presentation transcript:

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The Role of the Actuary in a Life Insurance Company Yangon, Myanmar 14 July 2014 Darryl Wagner, FSA, MAAA Chair, IAA Asia Subcommittee

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2 What we’ll cover A key difference between (individual) life and non-life business Some traditional actuarial roles in life insurers Some non-traditional actuarial roles in life insurers And why these roles are important

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3 Individual life vs non-life Most non-life policies (and group life policies) are written for one year at a time Individual life policies last for many (10, 20, …, 50+) years, with policy terms determined largely at issue, often with guaranteed level premiums

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6 Age Probability of death Level premium Profit?? Individual life policies

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7 Some questions that arise How much should the insurer be setting aside as a liability now to ensure it will have enough later to pay the claim, if/when it ever happens? Which mortality table is to be used? and what kinds of adjustments are necessary/appropriate? How will the premium be invested? How will future premiums be invested? What rates will they earn? How many policyholders will lapse/surrender their policies before death? and when? What expenses will be incurred in administering the policy? What impact of inflation?

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9 Assumption-setting underlies many of these roles Ideally “best-estimate” the same for both pricing and valuation, but In valuation, a need for explicit risk margins, varying with degree of risk and with degree of uncertainty around the best estimate In pricing, a margin for risk and profit important, varying ideally again with degree of risk and degree of uncertainty around the best estimate Combination of own experience (if any), industry experience (if any), industry experience elsewhere, non- insurance-specific experience, etc., all adjusted appropriately for the product, the underwriting, the distribution channel, and the company

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10 Product design and pricing Committing the company now to obligations it will still have 30, 40, 50, and more years from now! Current experience and economic environment is important, but how about the future? Translating company profit targets into profitable and saleable products – a challenge! Clear communication to management important – sensitivities and ranges of outcomes Poor pricing can come back very quickly to haunt you, and is picked up soon in valuation …

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20 Dynamic solvency testing Emerging approaches to financial reporting give a much better picture of where the company stands today. But … They don’t necessarily provide a good understanding of how sensitive a company’s solvency is to changes in market or economic conditions, its sales success (or failure), and other factors Dynamic solvency testing assesses future financial position under a variety of scenarios Now leading to an even broader Own Risk and Solvency Assessment approach (ORSA)

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22 Moving to non-traditional roles Areas:  Enterprise risk management (ERM)  Asset-liability management (ALM – really one component of ERM)  Investment strategy  Transformation of platforms, processes, and organization  Predictive analytics, especially around new business In fact, these not really that non-traditional, but merely an evolution of these functions over time In life insurers, asset-liability management the most critical piece of ERM, given the long-term nature of the business

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23 With appropriate qualification, a provider of formal opinions to the regulator and public The producer of the key elements of the financial reports Instrumental in projecting future solvency The developer of the company’s products Often the Chief Risk Officer A key advisor Often a key player in management, and sometimes the CEO! In summary, an actuary is

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24 Education, at the outset and continuing thereafter Professionalism, including  A meaningful code of conduct  A discipline process Guidance for actuarial practitioners  Standards of practice  Educational notes Equipping the actuary for this Given the long-term nature of the obligations of an insurer, and the extreme sensitivity of the company’s financial position to the actuary’s work, these are critical!